Rates from Bankrate.com

Earnings reports can cause price swings in both directions, and some savvy investors anticipate upward trends by buying stocks in the days leading up to a company's latest report. Even more attractive to buyers is an stock trading well below its lowest target price, suggesting an undervalued company that can be picked up on the cheap.

The list below features three stocks considered undervalued relative to analysts price expectations, which institutional investors are buying before they release their next round of earnings reports.

To build this list we first screened for stocks selling at prices below analyst targets, limiting our universe to companies with earnings reports coming out next week. We specifically searched for potential upside of at least 15% based on the lowest target price. [Stocks Reporting Earnings This Week: 20 S&P500 Stocks Reporting Earnings With History of Upside]

We use the lowest target price because analyst prices tend to be inflated, and we only included companies with at least five analyst target prices to ensure a variety of opinions.

Finally, we looked for an increase in buying from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that hedge fund managers and mutual fund managers expect the upside, and that these stocks could prove the analyst targets are correct.

The List

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

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Do you agree with institutional investors' decision to invest? Use this list as a starting point for your own analysis.

1. Corrections Corporation of America (CXW): Operates privatized correctional and detention facilities in the United States.